$4,284,500,000,000

That’s what the so-called “financial crisis” of 2008 has cost the federal government directly… so far.* Wonder how that stacks up to other crises? CNBC has a slideshow showing the costs (inflation-adjusted) of some of the biggest government projects ever.

There are many events not listed in that slide show, of course. Two of the most notable: the Civil War ($60.4 billion in 2008 dollars, for both sides) and World War I ($253 billion in 2008 dollars).

For comparison, $4.28 trillion is approximately 31% of 2007 US GDP. It’s also 167% of 2007 federal tax revenues. How’s that for deficit spending?

You may bring your eyebrows back to earth now.

* Some of this money is in the form of loans. Many of these loans are to companies hemorrhaging cash faster than they can borrow it and are explicitly designed as relief against bad assets, however, and the crisis is hardly over. So, counting this money as lost is only wise.

The Only Graph You Really Need to Understand the Auto Industry’s Problems

It’s the best one-image summary of why the Detroit Three are in such hot water, and it’s on Michigan economist Mark Perry’s blog.

(h/t Greg Mankiw).

Are Stocks Really A Bargain?

Elliott Wave International asks, “Are stocks really a bargain?” If you believe your eyes, the answer is pretty clear.

P.S. In case you were wondering what the current DJIA dividend yield is (click the link above to see why this is relevant), you can see that here.

Not Everyone Should Own a Home

Not Everyone Should Own a Home. Amen. What the Australians, the Europeans, and those who actually have to make their living in banking all get is that many, many people lack the means and others the responsibility to own their own homes. What was lacking in the run-up to the current bubble was not regulation. On the contrary, what was lacking was a free market – lenders were pressured more and more forcefully into suicidal maneuvers; most of them, facing oppressive government in the short term, opted for the long-term risk, held their noses, and took the plunge. And here we are, having inflated credit and the nominal money supply beyond all reasonable bounds, watching institutions which weathered two world wars and the Great Depression fold on a weekly basis. Methinks the problem was not leaving them alone too much of the time…

I Don’t Get It.

I have nothing against credit card companies or other commercial lenders. They provide a valuable service at the rates (prices) the free market will bear, and that’s a good thing. That said, I am sometimes amazed at some of the great deals a credit card company will offer me. Like the cash-back program one credit card company wants me to enroll in. I can get 2% cash back, up to a maximum of $100 annually, for a semiannual fee of $64.99. Say what? I may be a math major and lawyer (though not licensed yet), but I do like to think most people can comprehend how this works. Is that really the best offer my bank wants to throw at me this month? I’m a little offended.

Scary Economics

During the Republican debate at the Reagan Library, John McCain was asked:

[Do] you have a plan to help people with bad credit get lower interest rates so they can keep those homes and avoid foreclosure[?]

Any answer to that other than “No,” “What?”, or “Why?” demonstrates a misunderstanding of how we got to where we are economically and how we’re going to get back out. The private sector – the free market – actually goofed. Big time. It made lots of loans to people who couldn’t pay them back, then loaned out those loans and made still more loans on the backing of those meta-loans. It’s precisely the availability of unreasonably low interest rates to high-risk borrowers that created the housing bubble and that is currently bursting it. Worse still, in order to get out, we are going to have to deal with that fact and let private industry take the hit, at least to some extent. The last thing we can do is force banks to take on more bad debts – debts which are already in or near default – and take them for longer term. Even if there’s no forcing, but only incentivizing through government aid, we are doing nothing but encouraging more risky behavior and trying to put duct tape on the bubble.

McCain’s answer started out:

Yes, and it’s tough and it’s tough here in California, it’s tough in Arizona, it’s tough particularly all over, but it’s very tough particularly in the high growth states.

McCain is a good man, but he is not a conservative, and he has no idea how to lead this country back to financially solid ground.

How to Design and Backtest a Trading System

I have been working for some time on various systems for trading stocks, and thought I would share some of my observations and the lessons I have learned.

Continue reading “How to Design and Backtest a Trading System”

Budget – Yes!

I just finished working through my in-school budget – it looks like it’s in pretty good shape. I didn’t try to work it out, until now, because there were just too many unknowns for my first month or so in a new (and more expensive than I am used to) city, especially with book purchases and move-in expenses. I’m very, very relieved to find that I’m right on the money (pun intended).

$4 Gasoline – Coming Soon, to a Pump Near You

I’ve been saying for years, now, that $4/gallon gasoline is an inevitability in the United States. Between the fragility of global oil production, the popularity of gas-guzzlers and the fondness of legislators of tacking on all sorts of gas taxes, it is bound to happen. Well, it looks like it’s happening a few months earlier than I expected. Gasoline futures prices jumped to $2.65, today, which translates into just about $4, when all local and federal taxes (not to mention a little profit for the station owner) are tacked on at the pump. These are futures, so we’re not looking at these prices immediately, but certainly in the near future.

If you’ve spent much time on this site, you may be familiar with the Elliott Wave Theory, which basically states that prices in equities and commodities markets (among others) are driven by psychology, not the “news,” or outside events. In this case, supply is obviously a real consideration, as the already delicate balancing act that is the petroleum industry has been jarred by seriously reduced refining capabilities in the wake of Hurricane Katrina. Side note: I am, of course, deeply saddened by the impact of Katrina in terms of loss of life and the financial impact on the Gulf coast. The costs of this storm will be with us for many years, in both social and economic terms.

Note that President Bush’s opening of the Strategic Petroleum Reserves is an empty political gesture, capable only of calming the public, if that. The oil in question is crude oil, which must be refined before it can be used. Since the impact of the storm was on refining capacity more than production, the impact of the SPR releases will be negligible, if not actually negative (since the one thing it will definitely do is reduce the SPR’s size, at least temporarily).

My advice: fill your car’s tank every time you can – the next time you pass the station, the prices will probably be higher. Also, the chairman of BP Capital is predicting serious gas shortages; he ought to know. If you have some money to throw around, buying gasoline futures (not oil futures) is not a bad idea, short term. If you have a ton of money to throw around, buy an oil refinery or import business. Personally, I think we’re looking at $6.50-7.50 pump prices, sometime in the next 2-3 years, before prices drop back down for a while.

UPDATE: Gas futures actually reached $2.90 on the New York Mercantile Exchange, according to Reuters. The same article explains that, on average, pump prices run about $0.65/gallon higher than the futures, and that the impact should be felt at the pump within about 3 weeks. That’s $3.55, folks. It’s coming.

DISCLAIMER: nothing on this site should be construed as recommending specific investments or a financial course of action. All statements represent the opinion of the author only. Seek professional advice before making any investment decisions, and risk only money you can afford to lose.